By Mwangi Muiruri
Hidden costs and strict criteria for a mortgage amplify the reality that owning a decent home is not cheap.
"You are lured by an enticing interest rate, the beauty and location of the house and the fact that you need not raise the amount in lump sum," says Mr Maxwell Obwongi, an accountant, who took up a mortgage.
He says his time of reckoning came when he realised he had to furnish the house and service other debts alongside the mortgage.
Mr Justus Karani, a financial advisor, says some people who have mortgages suffer from ‘prestige syndrome’ that only visualises a property attached to his/her name. They get blinded by the total cost of owning the property.
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"Reality is, we are in an economic environment that is suffering from unpredictable inflation that can push mortgage payments to unaffordable levels," he says.
He argues that, with salary and wages disparity, those in the upper income brackets can afford to build their own houses or service mortgages effortlessly, but those in the middle income brackets are vulnerable to the high cost of borrowing. Mortgage lenders consider one’s age, salary, type of contract with the employer and the sector one works in.
"We have to be sure that we are lending securely," said a customer service officer in one of the mortgage firms in Nairobi.
If in self-employment, the lender will insist on ascertaining one’s cash flow as proven by in a bank account.
A guarantor will be demanded in many cases, making the process tedious.
Mr David Muchiri, a member of the Kenya Private Sector Alliance, and a specialist in real estate, says mortgages with low interest rates are likely to carry a higher down payment.
"The hidden catch is you are enticed to pay a higher down payment and face lower payments over the term of your mortgage. The alternative is a lower down payment but higher monthly repayments. If you calculate the two terms of engagement, one will be higher," he says.
He says brokers, who charge for negotiating mortgages, have infiltrated the sector.
Muchiri says the mortgage arrangement works like hire purchase where the full amount is exorbitant and committing since it is an obligation contracted to last years.
Ms Stella Maiyo, a financial advisor, says many mortgages levy exit fees, which applies when you want to get out of your mortgage before the agreed term has elapsed.
"This clause in the agreement is tailored to box you into walking the whole hog.
Before signing the agreement, check whether the mortgage contract carries a huge exit fee," she says.
She also cautions that, in the hurry to commit yourself, you could overlook stamp duty, which the Government imposes on all property purchases.
"On top of all these charges, remember the costs of buying new furniture and appliances," she cautions. It also emerges that lenders are classifying applicants in "job security clusters".
A staffer in the mortgage department of a local lender says the economic crunch affects certain sectors harder.
"This is inducing job layoffs in specific job markets hence leaving us with no choice but to consider employees therein as more of a financial risk," she says.
To qualify, she says, such customers are required to commit themselves into a mortgage indemnity guarantee, which is an additional deposit above the total cost of the mortgage.
Housing Finance Board Chairman Kung’u Gatabaki says mortgage costs can come down if the Government addresses the issue of scarce land, which he says has pushed up property prices.
"Scarcity of land has also restricted low-income earners in rural economy," he says.
The Government admits a mortgage can be risky for the middle-income earners.
Housing PS Tirop Kosgey says it is for such concern that the Government through Public Private Sector Partnerships is accelerating construction of 55,000 housing units under an employer incentive programme as well as producing 100,000 more units under urban renewal/ redevelopment programme.
"This is for the purpose of opening up chances of owning a low-cost home," he says.